1

Electrifying Myanmar

Challenges and opportunities

for planning national access

to electricity

The World Bank December 2016

Electrifying Myanmar: Challenges and opportunities planning nation-wide access to electricity © 2016 The International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington DC 20433 www.worldbank.org This document is a product of staff of the World Bank Group. The findings, interpretations, and conclusions expressed in this report are entirely those of the authors and should not be attributed in any matter to the World Bank, or its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. Cover Photo: Alan David Lee

Contents

INTRODUCTION ....................................................................................................................................... 1

EXECUTIVE SUMMARY ........................................................................................................................ 2

1. MYANMAR’S ELECTRIFICATION CHALLENGE ........................................................................ 4

1.1 Low Access, Rapidly Growing Demand, and Rampant Power Shortages ................................... 4

1.2 Institutional Setting: Need to Strengthen Coordination, Capacity, and Legal Frameworks ..... 6

1.3 Electrification Status and the Importance of Financing ............................................................... 9

2. APPLYING PRINCIPLES AND LESSONS FROM SUCCESSFUL INTERNATIONAL

ELECTRIFICATION PROGRAMS ...................................................................................................... 12

2.1 Common Underlying Principles of Successful, Rapid Electrification ........................................ 12

2.2 Closer to Home: East Asian Experiences and Lessons ................................................................ 15

3. THE NATIONAL ELECTRIFICATION PLAN ............................................................................... 16

3.1 Context and Objectives of the Plan ............................................................................................... 16

3.2 Least-cost Geospatial Planning Approach .................................................................................... 16

3.3 Rationale for Off-Grid Electrification .......................................................................................... 20

3.4 Road Map to Universal Access by 2030 ........................................................................................ 24

3.5 Implementation Arrangements ...................................................................................................... 25

3.6 Phase One of the Plan: 2015–2020 ................................................................................................. 26

3.7. The National Electrification Project ............................................................................................ 26

4. ELECTRIFICATION AND POWER SECTOR REFORMS ........................................................... 30

4.1 Recent Reform and Policy Developments ..................................................................................... 30

4.2 Agenda for Further Reforms ......................................................................................................... 31

4.3 Need for New Generation and Transmission Capacity ............................................................... 33

5. INTERNATIONAL DONOR SUPPORT FOR ELECTRIFICATION ........................................... 35

5.1 Rationale for Concessional Finance .............................................................................................. 35

5.2 World Bank Group Support .......................................................................................................... 36

REFERENCES .......................................................................................................................................... 38

Annex 1. Bangladesh IDCOL Model for Off-Grid Electrification ....................................................... 39

Annex 2. Information Resources ............................................................................................................. 41

Annex 3. Development Partner Support for Electrification ................................................................. 42

Acknowledgements ................................................................................................................................... 46

Map of Myanmar ...................................................................................................................................... 47

Glossary and abbreviations ...................................................................................................................... 48

Figures

Figure 1. Electricity Access in Myanmar and Select Countries, 1990–2014 .......................................... 6

Figure 2. Electricity Prices in Select Countries of East Asia and Pacific (Average Price for All End

Users, 2014 or Latest Available Year) ....................................................................................................... 8

Figure 3. Business Electricity Prices: International Comparison, 2013................................................. 8

Figure 4. Geographic Distribution of Communities for Different Electricity System Types ............. 18

Figure 5. Initial Costs per Household Connection with Increasing Penetration Rate for Four

Regions within Myanmar ......................................................................................................................... 19

Figure 6. National MV Grid Extension in Five Phases, 2015–2030 ...................................................... 20

Figure 7. Increase in the Length of MV Lines Installed per Household .............................................. 21

Figure 8. Locations Proposed for Grid and for Pre-Electrification under the 2014 Plan .................. 23

Figure 9. Number of Households Targeted for Pre-Electrification by State/Region .......................... 24

Figure 10. Projected Number of Connections to Achieve National Electrification ............................ 25

Figure 11. National Least-Cost Extension by State/Region, 2015–2019............................................... 26

Tables

Table 1. Early Estimate of Annual Capital Expenditure by Connection Type according to 2014 Plan

(US$, millions) ........................................................................................................................................... 26

Table 2. Estimated Project Cost and Financing Requirement by Component ................................... 29

Table 3. Results Indicators for National Electrification Project .......................................................... 29

Table 4. Proposed Short-term and Long-term Policy Actions .............................................................. 34

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INTRODUCTION

This report describes key challenges and opportunities for the people of Myanmar to achieve

universal access to electricity by 2030. Specifically, the report takes stock of work done in

preparation for Myanmar’s 2015–2021 National Electrification Project, including the 2014

National Electrification Plan, in context of lessons from World Bank support to electrification

efforts in Southeast Asia and beyond. The report has been prepared by World Bank staff1 for the

Government of the Republic of the Union of Myanmar and all other parties with an interest in the

goal of universal electricity access. The report does not focus on implementation of electrification

efforts in Myanmar to date, though readers may refer to other resources for related information.2

The report is structured as follows:

Section 1 describes the country and sector context, as well as the main challenges faced, to

aggressively increase access to reliable, affordable electricity in an efficient and sustainable

manner.

Section 2 presents international best practice and lessons learned from experiences of rapid

transitions from low to high access in other countries, including in the East Asia Region.

Section 3 describes the National Electrification Plan, which includes a geospatial analysis

and estimate of financing needs.

Section 4 discusses implementation challenges for the plan’s first phase to 2021, including

institutional and sector reforms, without which national electrification is unlikely to be

carried out efficiently or on schedule.

Section 5 describes the development rationale for international donor support for national

electrification, including the role of the World Bank Group, for the 2016–2021 project.

1 See Acknowledgements for author details. 2 For links to source document and information resources, see Annex 2.

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EXECUTIVE SUMMARY

1. Access to reliable, affordable, and clean electricity is a critical part of Myanmar’s

development agenda. Myanmar is one of the poorest countries in Southeast Asia. Only one out

of every three households in Myanmar is connected to grid electricity, and for rural households,

this number is just two in five. Fulfilling the country’s great potential for development will depend

in large part on progress in the energy sector. Improving access to electricity can enable better

delivery of vital services such as health, education, and finance to boost jobs, well-being, and

economic prosperity.

2. Other countries have shown that rapid electrification is possible, even for rural

populations with relatively low average incomes. In the Lao People’s Democratic Republic (Lao

PDR) for example, around 90 percent of the population have access to grid electricity despite a

population of relatively low-income households in rural mountainous areas. Best practice

international experiences show that a transition from low to high or universal access can be made

within two decades, as Lao PDR and Vietnam in particular have accomplished. Rapid

electrification is most effective when there is sector-wide planning and coordination to mobilize

financial and physical resources at least cost, in a predictable and structured fashion.

3. Achieving Myanmar’s electrification goals requires a concerted effort to build

institutions, reform policy, and mobilize finance from private and public sources. The

Government has set a strategic goal of universal access electricity by 2030. Intermediate

milestones are for 50 percent of all households to have electricity by 2020 and 75 percent by 2025.

Given Myanmar’s relatively low level of grid electrification today, the Government must sustain

and scale up electrification efforts to achieve this. The Government’s National Electrification Plan

aims to connect 2 million households from 2015 to 2020 and an additional 5.2 million households

in the 10 years to 2030. The plan calls for investments of US$5.8 billion from 2016 to 2030 under

a two-pronged approach, based on a complementary and coordinated extension of grid connections

and off-grid electricity. Myanmar’s patterns of settlement and electricity demand suggest that grid

power will dominate in the long term. However, to bring basic electricity service as soon as

possible to a maximum number of households, there is also a need for a systematic off-grid

program, consisting mostly of solar home systems (SHSs) and mini-grids.

4. In recent years, the Government has initiated several reforms to improve energy sector

institutions and policy. While these policy developments are significant and commendable,

national electrification will require further deep reforms to overcome existing institutional and

financing constraints. The 2014 Electricity Law has created the foundation for further sector

reforms, including establishment of an electricity regulatory commission. However, these reforms

will take time and in the meantime, electrification must increase rapidly to achieve the targets on

time. With this in mind, a number of measures are suggested to improve operational efficiency and

flexibility of electricity utilities in the short term, and enable steps to scale up electrification. These

include the following measures:

Power generation and distribution utilities to operate as corporations on an increasingly

commercial basis

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Establishment of the dedicated energy regulatory commission to set electricity tariffs in a

transparent and rigorous process.

The Government to develop and announce a five-year tariff path policy consistent with the

electrification plan and with a realistic assessment of consumers’ ability and willingness to

pay.

Distribution utilities to adopt medium, and long-term planning practices, beyond current

annual investment and implementation plans.

Increase in private sector participation across the electricity value chain.

5. National electrification will require a growing role for the private sector, including a

mix of private equity and commercial debt. However, in the immediate future, access to

appropriate private finance is expected to be severely constrained. Therefore, it is very likely that

without substantial support from the international development partners, the electrification targets

will not be met. Concessional donor finance will ensure that the burden on Myanmar consumers

and the Government is consistent with their ability to pay, while sector reforms are implemented

to enable greater private investment.

6. This 2016–2021 National Electrification Project establishes the basis for the World Bank

Group, other development partners, and the private sector to sustain investments and strengthen

the Government’s institutional capacities needed for universal electricity access by 2030.

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1. MYANMAR’S ELECTRIFICATION CHALLENGE

1. The Government’s long-term objective is universal electricity access by 2030 with secure

reliable, affordable, and environmentally and socially sustainable energy supply to all consumers.

This involves many challenges, as described in the following sections.

1.1 Low Access, Rapidly Growing Demand, and Rampant Power Shortages

2. Endowed with abundant natural and human resources in a country that once possessed

Southeast Asia’s most dynamic economy, perhaps no economic issue is as pressing as the need to

upgrade and expand Myanmar’s antiquated power sector, which is unable to provide adequate,

reliable, and affordable electricity service to most of its 51 million people (KWR 2015; World

Bank 2016). At around 160 kWh, Myanmar’s annual electricity consumption per capita is twenty

times lower than the world average. Two-thirds of the population and 84 percent of rural

households are not connected to the national electricity grid.3 At about 30 percent, the overall

electricity access rate is low compared with Myanmar’s regional peers (Figure 1). The lack of

affordable and reliable power is a key constraint to the delivery of vital services such as health,

education, and finance for rural populations as well as private sector development and job creation.

Also, access to modern fuels for cooking (such as liquefied petroleum gas) is limited to urban

areas. Consequently, traditional biomass (wood and animal dung) is widely used and accounts for

about 70 percent of primary energy consumption.

3. In Myanmar, around 22 percent of households have off-grid electricity schemes, which

typically provide high-cost, low-reliability power service for a few hours per day.4 Consequently,

traditional biomass (wood and animal dung) is widely used and accounts for about two-thirds of

primary energy consumption. According to the 2014 census (The Republic of the Union of

Myanmar 2015), 69 percent of the population uses firewood as the main energy source for cooking

and 46 percent uses kerosene, candles, or batteries as the main source for lighting.

4. After decades of isolation, Myanmar’s political and economic transformation since 2011

have significantly improved the economy’s performance, making it one of the fastest growing

economies in Asia. As a result, electricity consumption is growing extremely fast. Peak load

demand reached 2,100 MW in 2014, increasing at an average 14 percent per year over the past five

years.5 During this period, the electricity supplied by the national grid grew rapidly at 15 percent

per year and reached 9.6 terawatt-hours in 2013, exerting much pressure on an overstressed and

3 According to the 2014 Census (Republic of the Union of Myanmar 2015), 7.35 million households’ main source of

lighting was not electricity (kerosene, candle, battery, generator, water mill, solar system, or other). Average

household size is 4.4 persons. 4 In this report, ‘grid’ refers to Myanmar’s national electricity distribution networks operated by the Yangon

Electricity Supply Corporation (YESC), Mandalay Electricity Supply Corporation (MESC), or Electricity Supply

Enterprise (ESE). ‘Off-grid’ electricity refers to sources other the grid. Any given household or community may

have grid or off-grid electricity, both or neither. 5 Peak load demand is estimated at about 2,400 MW, but due to load shedding the realized peak is only 2,100 MW.

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degraded grid infrastructure, which is mostly concentrated in urban areas.6 Hydropower accounts

for 68 percent (3,151 MW),7 natural gas 29 percent (1,329 MW), and a small coal-fired power

plant 3 percent (120 MW) of total installed capacity (4,600 MW) on the grid. Small off-grid diesel

and mini-hydropower units dispersed across the country have an estimated total capacity of about

114 MW. Due to heavy reliance on extremely seasonal hydropower with low firm capacity, the

existing power generation system cannot meet the peak demand during the dry season.

5. Electricity shortages and supply disruptions are widespread. Accumulated delays in

investments in power infrastructure, degraded generation plants,8 fuel shortages,9 over-reliance on

seasonal hydropower production, together with a rapid increase in electricity demand (which

tripled over the last decade), have resulted in large electricity shortages, which peaked at about 30

percent of power demand in 2012–2013. Despite a significant recent increase in gas-fired power

generation, load shedding, blackouts, and generally low reliability of power supply remain

prevalent.

6 More than half the wiring in the power grid is estimated to be at least 70 years old (KWR 2015). According to

Government estimates, 20 percent of power is lost during transmission and distribution. On the positive side, ESE

has made significant progress in reducing distribution losses from around 23 percent in FY2009 to 13.7 percent in

FY2014. In FY2014 alone, the losses were reduced by 3.2 percent through a strong focus on eradication of

commercial losses. YESC has also made progress in reducing distribution losses to about 15.6 percent in FY2014.

While significant room for reduction of commercial losses still exists, it will be increasingly difficult to continue the

loss reduction program without major investments to modernize the existing power distribution system, reduce

overloading, and improve the metering system. 7 Including joint venture hydropower projects which exported about 2 terawatt-hours to China in 2013/2014. 8 For example, the installed capacity of Myanmar’s single operational coal-fired power plant (at Tigyit) is 120 MW.

But due to inadequate maintenance and degradation of equipment the available capacity was only 27 MW in 2013

(Intelligent Energy Systems 2014). The thermal efficiency of fossil fuel power plants is only 28 percent, the lowest

in the region (Ross 2015). 9 There have been periodic shortages of natural gas, much of which is exported. This circumstance limits the

construction of new gas-fired power generation capacity. Presently, nearly one-third of Myanmar’s electricity is

generated from natural gas (Intelligent Energy Systems 2014).

6

Figure 1. Electricity Access in Myanmar and Select Countries, 1990–2014

Source: World Bank 2016.

Note: GDP = Gross domestic product; PPP = Purchasing power parity

1.2 Institutional Setting: Need to Strengthen Coordination, Capacity, and Legal

Frameworks

6. Myanmar has a highly complex energy policy environment. Government decision making

in regard to energy and electrification has until recently been divided among at least eight

ministries (KWR 2015). Furthermore, the low number and capacity of staff dedicated to energy

policy, electrification, planning, and regulation severely limits the power sector development. This

complicated structure of responsibility sharing tends to cause slow decision-making and approval

processes and creates challenges for coordination among the multiple authorities (Intelligent

Energy Systems 2014).

7. The Ministry of Energy and Electricity (established in April 2016) is responsible for overall

energy policy, with subsidiary departments and enterprises responsible for oil and gas and the

various elements of the power sector (hydropower, thermal power, transmission, and distribution).

Under MOEE, the Electric Power Generation Enterprise (EPGE) is a ‘single buyer’ of electricity

from public and private producers, including a small number of independent power producers

(IPPs). EPGE then sells electricity to three state-owned distribution utilities who report to MOEE.

YESC and MESC became corporations in 2015 but remain state-owned and cover Myanmar’s two

most populous and urbanized regions. ESE serves the rest of the country. These distribution

enterprises partner with private companies for delivery to end users in respective operating

franchises (World Bank 2015a; Ross 2015).

8. Government policy formally limits the role of these distribution utilities to medium voltage

(MV) primary distribution, leaving low voltage (LV) secondary distribution open for private sector

participation, including through village initiatives and direct private investments. The utilities

nevertheless carried out significant investments in second distribution over the last couple of years

7

as shown by the increased number of new household connections, but such investments tended to

be discretionary and without systematic planning. In rural areas, the Department of Rural

Development (DRD) within the Ministry of Agriculture, Livestock, and Irrigation (MOALI) is

responsible for off-grid electrification. In addition to the national (Union level) ministries, the

seven states and seven regions have their own energy ministry and are responsible for issuing

permit to power projects below 30 MW capacity without connection to national grid. The

Government has transferred a portion of the 2015–2016 Union Budget for electrification to

states/regions as a part of a broader decentralization effort. The state/regional energy ministers

usually have no or few staff and work under the Chief Minister.

9. Regulatory Framework. In 2014, the Government passed a new electricity law. However,

the law does not yet include implementing rules and detailed guidelines. As a result, the regulatory

environment is ambiguous and can be challenging to navigate, particularly for off-grid service

providers. For example, for small power producers, this means a lack of standards for connecting

rural renewable electricity supplies to the national grid. Thus, most electrification activity is

bifurcated between grid-extension efforts and off-grid rural projects, with limited opportunities to

integrate these approaches. Myanmar does not yet have standardized practices for joint ventures

and power purchase agreements (PPAs), which leads to time-consuming, case-by-case

negotiations (KWR 2015; Ross 2015).

10. Electricity tariffs are tightly controlled by the Government and are severely distorted and

heavily cross-subsidized. As Figure 2 and Figure 3 show, Myanmar’s power tariffs are among the

lowest in Asia. On average, electricity is sold to end users at a tariff well below the cost paid to

producers. Large commercial and industrial users cross-subsidize residential and small-medium

commercial and public sector customers, whose tariffs remain below the average cost of supply

(World Bank 2016; Ross 2015).

11. The low tariffs create barriers to investment in the energy sector and disincentives to

improving energy efficiency in the economy. There is global competition for private sector

investment. The main expectations of the private investors are that (a) tariffs must reflect costs;

(b) tariffs must ensure adequate returns on investments; (c) the law must protect private assets; and

(d) there must be transparency through mechanisms (for example, via auctions). While private

sector interest to invest in Myanmar is high, especially in generation, a legal and regulatory

framework that meets international standards would increase Myanmar’s attractiveness even

further (Intelligent Energy Systems 2014).

12. Chronic underinvestment in energy infrastructure over the past decades has led to shortages

and deteriorating reliability of energy and hindered the development of social services including

healthcare and education. Therefore, a sound energy pricing policy is not just a cornerstone of a

financially viable energy sector but a catalyst for wider economic and social development.

8

Figure 2. Electricity Prices in Select Countries of East Asia and Pacific (Average Price for All End Users,

2014 or Latest Available Year)

Source: World Bank staff estimates based on data collected for Regulatory

Indicators in Sustainable Energy.

Figure 3. Business Electricity Prices: International Comparison, 2013

Source: Castalia Strategic Advisors 2014.

0

50

100

150

200

250

Indonesia Myanmar Lao PDR Malaysia Vietnam Pakistan Thailand Phillipines Cambodia

Bu

sin

ess

Kya

t/kW

h

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1.3 Electrification Status and the Importance of Financing

13. Sustained funding for up-front investments, the financial viability of the power sector, and

affordability are closely linked to successful electrification programs.

14. Grid-based electrification. As of 2014, the power distribution network comprises about

15,500 miles of MV lines, 14,000 miles of LV lines, and 30,308 distribution transformers with a

combined capacity of 7,452 megavolt-ampere. The MV network uses a two-tier distribution

system with the primary distribution at 33 kV and the 11 kV distribution feeders supplying MV/LV

transformers. As of early 2015, about 86 percent of MV and 75 percent of LV network was

operated by ESE, with the remainder operated by YESC. However, ESE accounts for only 53

percent of installed transformer capacity, showing the low level of grid density outside Yangon

Region. Furthermore, the average installed transformer capacity is only 2.1 kilovolt-ampere (kVA)

per consumer for ESE, which compares to 3.4 kVA per consumer for YESC. The average age of

YESC’s distribution network is more than twice the age of ESE’s, which was mostly developed in

the last 10–15 years.

15. The number of existing household consumers served by ESE (1.9 million) and YESC (1

million) indicate the share of all households with electricity was about 20 percent in ESE’s service

area and 65 percent in YESC’s service area. The average annual electricity consumption per

residential connection in Yangon (2,011 kWh) was about twice the average consumption in ESE

(953 kWh) in 2013–2014.

16. Achieving the plan’s objective requires an electrification rate of 400,000 connections per

year on average. New connections added in FY2015 already reached this average rate, double the

200,000 total national connections in FY2014. The number of new connections per year steadily

increased from 90,000 to about 150,000 in ESE over the five years to 2014. During this period,

the number of new connections per year for the Yangon service area increased from 30,000 to

54,000. In 2014, the number of new connections showed a steep increase to about 204,000 in ESE

and 76,000 in YESC, as electrification has become a Government priority.

17. Grid extension in Myanmar has long been constrained by chronic underinvestment due to

insufficient government funding. The utilities were financially sound before 2013, serving a small

market, but were negatively affected that year by deep currency devaluation. The recent increase

in the Government’s support for investments in power distribution has come after a long period of

low investments, but to achieve universal access by 2030 will require greater investment still.

Given the large investment needs for MV and LV networks, at the current pace of financing for

grid-based electrification, it would take more than 26 years to reach universal access to electricity

in Myanmar.

18. Due to the historically slow extension of ESE’s and YESC’s distribution networks, the

private sector, led by self-organized village committees, emerged as an important contributor to

grid-based electrification. Committees are self-organized by relatively higher-income villagers

willing to pay the cost and able to mobilize funding for village electrification. Committee

responsibilities vary from village to village, but they typically include mobilizing financing from

villagers and external sources, obtaining utility approval for project design, hiring contractors for

construction, assisting the utility to connect households, and commissioning the new facilities.

10

Once they are commissioned, the distribution assets are transferred to the utility for operation and

maintenance.

19. The connection cost has also been a significant barrier for poor households even in villages

that are already electrified. Currently, the connection cost includes (a) the electricity meter, (b)

service drop cable, and (c) installation works. The charge is about K 65,000 (or US$65) for the

analogue meter and K 90,000 (US$90) for the electronic meter. The service drop is charged based

on the actual length and cable size/type, but on average it costs about US$50 per household. The

distribution utilities charge and collect the connection cost (World Bank 2015b).

20. Off-grid electrification. As of 2014, about 2 million households have access to off-grid

electrification. Financing has especially been difficult in the off-grid space. Companies installing

off-grid systems lack investment capital and working capital, including access to trade finance.

Consumers have limited access to financing for electrification. Overall, Myanmar’s banking sector

is severely constrained, with limited products, services, and outreach.10 The sector is largely

confined to fixed deposits and one-year fixed-rate loans with collateral requirements. While over

100 microfinance license holders (of 236 licenses in total) are active in the country, they primarily

focus on easier-to-access peri-urban and dry-zone areas. Myanmar’s 2011 legal framework for

microfinance institutions (MFIs) has several challenges, including limited differentiation between

deposit and non-deposit MFIs, low capital requirements for deposit-taking institutions, and an

interest rate ceiling of 30 percent per year.

21. Microfinance for off-grid electricity systems is in an embryonic stage with only a few

companies offering microfinancing in limited areas for solar lanterns and solar home systems

(SHSs). Demand for microcredit far outweighs supply and until recently, thousands of households

have had little option for obtaining an SHS other than to purchase it outright. Self-help approaches

are widespread, reaching thousands of villages and hundreds of thousands of households. The

technologies include pico-, micro-, and mini-hydro; biomass gasification; diesel generator-based

mini-grids; and SHSs. These systems are usually financed by small entrepreneurs,

township/village committees, or the households themselves with almost no public financial or

technical support. They provide electricity for lights, entertainment, and limited productive use

equipment that the users would not have otherwise. However, power quality and reliability are

generally low (World Bank 2015a).

22. The Government is committed to providing basic electricity services for lighting and

information and communication technology in a sustainable, participatory manner to those

households which will connect to the national grid only in the later phases of its extension. The

affected households are likely to have lower incomes and face higher operating costs to access

electricity services given their remote locations, thus not favored by the private sector in the

absence of proper financial incentives. However, the Government’s budgetary resources and

limited technical and institutional capacity present serious constraints. Achieving off-grid

electrification requires engaging a broad set of stakeholders, including multilateral/bilateral

10 Most borrowers—including mini-grid developers—are limited to one-year loans at 13 percent interest rates and

they must use their homes or other immovable property as collateral (Ross 2015).

11

development organizations, financial institutions, private companies, local governments at the

state/region/district/township level, and village communities.

23. Within the Government, MOALI is mandated to promote renewable energy for rural

electrification and has received a sizable government budget to this effect. Since 2012, DRD within

MOALI (and its equivalent predecessor agency) has run an off-grid lighting program, giving away

SHSs to end users free of charge (that is, with a 100 percent subsidy). DRD provided 17,616 SHSs

in FY2013, 18,342 in FY2014, and 179,163 in FY2015, as well as more than 100 mini-grids during

the same period. The Government budget for FY2015 amounted to about US$37 million,

representing a tenfold scale-up from previous years. The budget for FY2016 is US$36 million.

24. However, in addition to budgetary limitations, the Government’s off-grid program faces

additional challenges as follows (World Bank 2015a).

(a) Untested business models. DRD’s lighting program uses two polarized approaches

(fully public or fully private sector-driven), neither of which are sustainable to scale

up over the long term. The 100 percent giveaway policy under the DRD program

misses the opportunity to leverage other resources and is not conducive to user

ownership of the systems. Vague specifications and a price-capped tendering

procedure do not lend themselves to obtaining the best products at the most

competitive price. Systems installed under the DRD program have not included

provisions for maintenance and repairs. To the extent that maintenance and repairs

occur, they are conducted ad hoc by users with little understanding of proper

maintenance procedures. Furthermore, in some cases when companies and

development organizations have approached communities to sell high-quality

photovoltaic (PV) systems, local expectation for free gifts from the Government

eliminated villagers’ willingness to pay (Ross 2015). On the other hand, the self-help

approach has often left the poor behind, involves inefficient use of limited resources,

and damages consumers’ confidence in the quality of off-grid products. Both

approaches hinder the market development in the long run.

(b) Lack of institutional capacity. Since its inauguration, DRD’s lighting program has

focused on project implementation using Government budgetary resources. However,

there is insufficient capacity in strategic planning, coordination, and policy-making

functions in off-grid electrification. This is a daunting task and requires a significant

amount of capacity building. The institutional capacity of local governments and

village committees are also lacking for off-grid electrification.

(c) High cost of quality SHS equipment and mini-grid systems relative to the ability

to pay of the users. Despite the advances in technology and related cost reduction in

off-grid electrification technologies, the high capital costs of SHSs and mini-grid

systems are beyond the means of many rural households in the pre-grid electrification

target areas. Even if consumer microfinancing is available, some poor households will

not be able to make the estimated monthly payments for pre-grid electrification

services (lighting plus information and communication technologies). In addition,

currently, solar installation companies are largely based in Yangon with little sales

and service presence in remote rural areas. Expanding their business to village

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households in pre-grid electrification areas will incur additional operating costs,

which increases costs to consumers.

(d) Lack of quality assurance for equipment and installations. Suppliers have limited

knowledge of, and access to, better-quality products. Consumers have even less

information to differentiate good quality from poor quality. There are many products

of questionable quality in the market. DRD staff and other implementing agencies do

not have necessary knowledge and skills to inspect the performance of the systems

and quality of installation. Local manufacturers of mini-hydro equipment and of

certain solar components lack access to knowledge and technical assistance (TA) for

improving quality and efficiency.

25. Near-term opportunities include (a) increasing capacity and efficiency of power generation

and (b) reducing the large losses in transmission and distribution networks to reduce electricity

shortages. The main medium-term opportunities will be sector reforms, particularly

corporatization of power sector enterprises and pricing reform to reflect the full economic cost of

electricity supply while protecting consumers with low incomes (or vulnerable to exclusion)

through well-targeted and fiscally affordable subsidies.

2. APPLYING PRINCIPLES AND LESSONS FROM SUCCESSFUL INTERNATIONAL

ELECTRIFICATION PROGRAMS

2.1 Common Underlying Principles of Successful, Rapid Electrification

26. Given Myanmar’s relatively low level of electricity access today, the Government must

continue and scale up existing efforts to achieve universal access by 2030. In this regard,

international electrification experiences point to promising opportunities. Best practice country

experiences show that the transition from low to high or universal access can be made within two

decades. In the East Asia Region, Lao PDR and Vietnam have accomplished this feat (World Bank

2011a; Independent Evaluation Group 2015) and are perhaps the most inspiring examples for

Myanmar.11

27. While every country has achieved universal or near-universal access suited to its unique

and homegrown institutional and geographical setting, there are nevertheless common principles

underlying successful fast-track electrification programs, including those discussed in the

following sections (Government of Indonesia and ADB 2015; World Bank 2015a; Independent

Evaluation Group 2015).

Grid Electrification.

Vision and sustained government commitment and leadership. Unwavering

commitment to achieving universal electrification from the highest levels of

government and staying the course over the entire duration of the program

implementation are essential.

11 Indonesia started at a much higher gross domestic product level and as mentioned later in this report, suffered

serious setbacks.

13

‘Many partners, one team and one plan’: comprehensive rollout planning. Planning national electrification needs to be comprehensive and synchronized,

adhering to nationwide least-cost electrification plan, coordinating grid and off-grid

delivery as appropriate, and bringing key stakeholders together systematically.

Electricity access is more than just a connection to a distribution network. The timely

and sustainable provision of adequate, reliable, and affordable electricity requires

balanced attention to the synchronized development of all components of the

electricity supply chain—fuel supply, generation, transmission and distribution, and

customer connections.

Enabling institutional environment. A comprehensive and conducive institutional

and regulatory framework, with accountability for results, is required to ensure

efficient program implementation. Adequate institutional capacity and program

management across the entire electricity value chain are essential for timely and

efficient access implementation. Therefore, institutional capacity development

throughout the value chain, including the electric utilities and sector institutions as

well as local contractors, is critical to organize and mobilize work teams all the way

to regional and village levels.

Sufficient and sustained financing. Effective policies and regulation are needed to

facilitate the large capital investments needed to bridge the access gap and to ensure

the electricity services are financially viable and affordable for all, especially for the

poor. Maintaining the financial viability of electricity utilities is essential for the

provision of adequate and reliable electricity services. If utilities are not strong enough

financially, Government commitment must be demonstrated by the full funding of the

access program over its entire life, which may require appropriately targeted

subsidies.

Affordability, equity, and inclusion. The Government should address these

important social aspects up front by targeting the poor and those in remote and

inaccessible areas.

Sector-wide programs for structured stakeholder engagement.12 The first sector-

wide approaches to electricity in Rwanda and Kenya show better results than what

12 The sector-wide approach emerged in the 1990s as an alternative to traditional development aid and is based on a

country-led, results-focused framework, as opposed to the traditional project-by-project approach. It encourages

engagement across all sector stakeholders to ensure that investments work together to contribute to desired outcomes

(for example, universal rural electrification). This approach emphasizes government and donor partnerships, with

the government leading and working with partners to formulate policy. The use of existing government systems and

processes and the achievement of specific goals and outcomes are key. In addition, donors and other stakeholders

assist with coordinated financing, drawing on diverse channels of funding, and bringing ongoing projects in line

with sector priorities. A sector-wide approach can help promote local involvement, accountability, and capacity in

the countries in which they are implemented. In 2009, Rwanda, with World Bank support, initiated a sector-wide

approach to help achieve its target of increasing access to electricity from 6 percent of the population to 19 percent

through 2016. The ongoing program focuses on providing off-grid access to electricity for schools, hospitals, and

administrative buildings that would not have electricity otherwise. A comprehensive investment prospectus provided

development partners and local stakeholders with the technical and financial implementation plans for the program

(ESMAP 2012).

14

can be achieved using a project-by-project approach to electrification. These World

Bank-supported sector-wide rollout plans form the basis for structured engagement of

the Government with multilateral banks, donors, and private sector partners. This

arrangement, coupled with Government commitment, led to significant financing

commitments from development partners. In particular, the private sector made

commitments that may not have been possible without the sector-wide programs.

Off-grid Electrification.

There are important emerging good practices in off-grid electrification such as the

SHSs program in Bangladesh, which installed and successfully serviced 2 million

systems in the past decade. The program is largely driven by the private sector, albeit

enabled by ‘light touch’ government regulation, especially at the outset, within the

framework of PPP and in a context of weak grid utility performance.

The right policy framework is a requirement for any successful off-grid program. The

fact that a large share of the unelectrified rural households is located in poor, remote,

and isolated areas underpins the importance of developing a dedicated off-grid policy

framework.

Subsidies are an important part of a well-designed off-grid policy framework given

the fact that off-grid schemes are usually more expensive than grid electricity, and

off-grid communities tend to have the lowest incomes. The sustainability of the

subsidy scheme requires a well-defined source of financing, preferably on a declining

scale at the commercial market matures. A sustainable long-run off-grid electrification

market requires maximizing private investment while minimizing subsidies.

There is no one superior business model to accomplish off-grid electrification.

Specific country conditions are important determinants of the model choice. For

Myanmar, a transition from Government-led off-grid electrification to a more

commercially oriented one—for example, along the lines of Bangladesh’s

Infrastructure Development Company Limited (IDCOL) model—will take time,

depending chiefly on availability of access to financing.13

The World Bank Group’s ‘Lighting Global’ programs have supported commercial

nonsubsidized markets in a number of developing countries. In these markets, nearly

50 million people gained access to improved electricity services from Lighting Global

quality-verified products, delivered through commercial businesses. Allowing a

nonsubsidized, commercial private market to develop with a range of quality-assured

products addresses multiple market segments and helps meet an array of energy

service needs.

13 IDCOL was established by the Government of Bangladesh and licensed by Bangladesh Bank as a ‘non-bank

financial institution’. It promotes and finances infrastructure and renewable energy projects, including off-grid

electrification. IDCOL has been the central actor in managing and funding Bangladesh’s highly successful off-grid

electrification in the past 15 years with considerable World Bank support. The IDCOL model and the relevant

lessons learned from it are shown in greater detail in Annex 1.

15

Off-grid solutions tend to thrive in countries where the grid extension is deficient,

such as Bangladesh. Off-grid electricity in Vietnam is largely non-existent and in Laos

has played a negligible role in their overall electrification achievements.

2.2 Closer to Home: East Asian Experiences and Lessons

28. Lao PDR and Vietnam have increased the access to electricity from less than 20 percent in

the mid-1990s to more than 90 percent (Lao PDR) and close to universal access (Vietnam) over

the last two decades (see Figure 1). The key element of success in both countries was long-term

national commitment to electrification which was broad-based and not unduly affected by political

and economic changes. Thailand, which achieved near-universal access to electricity a decade

earlier, consistently included rural electrification in its five-year National Economic and Social

Development Plans. A similar approach was taken in Malaysia throughout the 1980s and 1990s

following the establishment of the Rural Electrification Department in 1978.

29. As rural electrification requires significant capital investments, stable and predictable

availability of funds has been a key factor for successful programs. In Thailand, the Provincial

Electricity Authority (PEA) received low-cost, long-term loans for grid extension. These loans

significantly reduced the costs and enabled PEA to build its revenue base before the loan

repayment began. In Vietnam, the electrification program involved a major public investment

effort, matched by significant local contributions. The national power utility, Electricity of

Vietnam (EVN), was able to self-finance a large portion of the capital costs necessary for rural

electrification, and, in the early years, local governments and consumers also contributed

significantly. In Indonesia, the 1997 Asian financial crisis badly damaged the financial health of

the state electricity company (PLN) and made it difficult for the government to provide funds. As

a result, the electrification program slowed down and it only recently regained the speed after the

government secured financial viability of PLN through a subsidy scheme.

30. Adequate institutional capacity is essential for a timely and sustainable electrification

program. For example, Thailand created the Office of Rural Electrification (ORE) under PEA, and

dissolved it after the grid reached most villages, at which point PEA resumed responsibility for

serving villages. Under the successful ‘service agent model’ in Vietnam, local community

members maintained LV distribution lines, carried out simple repairs, and handled collections until

EVN took over these functions after the electrification phase was completed.

31. Vietnam’s rural electrification success shows the importance of clear allocation of

responsibilities among stakeholders. The rural electrification model relied on a cooperative

approach involving commitment and support from all levels of society. The process involved

major political decisions, working with provinces and local decision makers to ensure fairness,

sharing financing needs and management responsibilities, and ensuring significant social and

economic impact. In this process, EVN emerged as a strong national champion for rural

electrification. The policy and regulatory measures introduced by the Government of Vietnam,

equipping EVN with the mandate and resources it needed to perform its leadership role in a

commercially sustainable way, were critical components of Vietnam’s success in rural

electrification (World Bank 2011b).

16

32. A regulatory agency with a clear mandate, and mechanism for accountability, can balance

viability of an electrification program with protection of vulnerable consumers. Thailand and

Vietnam established such energy regulators to design tariffs and subsidy schemes that secure

reasonable financial position of service providers and affordability for consumers. A well-designed

and stable regulatory framework is essential for private sector participation, protection of

consumers, and management of boundaries between grid and off-grid options for rural

electrification.

33. Establishing appropriate technical codes and introducing recent technical innovations can

lower the cost and accelerate the implementation of the electrification program. In setting up their

networks, all power utilities must follow a technical code. However, codes which are designed for

densely populated urban areas may not be optimal for rural electrification. In China, for example,

costs were kept under control by developing two compatible national technical codes: one for high-

demand regions and the other for low-demand areas, with provisions for gradual transition to the

more stringent code over time. Many countries, including Lao PDR, adopted low-cost options for

low-demand areas, such as ‘single-phase supply and single-wire earth return’. Lao PDR also

deployed shield wire technology with significant savings in the mountainous regions.

3. THE NATIONAL ELECTRIFICATION PLAN

3.1 Context and Objectives of the Plan

34. The Government’s 2014 National Establishment Plan comprises two key documents: (a) a

least-cost geospatial electrification plan and (b) an implementation road map and investment

prospectus.14 The overall objective is to electrify 7.2 million households to achieve universal

electricity access by 2030. The plan calls for investments of US$5.8 billion over a 15-year period

to extend the distribution grid and electrify off-grid areas. To this end, the plan aims to provide a

common basis for coordination among different local and donor stakeholders, through a

comprehensive sector-wide, programmatic, least-cost approach.

35. Alongside the National Electrification Plan, the Government has developed an Energy

Master Plan for primary energy sources, with Asian Development Bank (ADB) assistance, and a

Power Sector Master Plan for generation and transmission, with assistance from the Japan

International Cooperation Agency (JICA).

3.2 Least-cost Geospatial Planning Approach

36. To achieve universal electricity access in a timely and least-cost manner, the plan envisages

coordinated grid extension and off-grid solutions. A key objective of the least-cost approach is to

make electrification planning geospatially specific, both to reflect the geographic diversity of

Myanmar and to ensure that resources for electrification are used as effectively as possible.

Underlying analysis (Earth Institute, Sustainable Engineering Lab, Columbia University 2014)

shows that the grid alone cannot reach all communities in an optimal manner, particularly outside

the central plains of Myanmar. For example, in Shan, Kayah, and Chin States, settlements are

14 At the Government’s request, with funding from the ESMAP, the World Bank supervised the preparation of the

geospatial plan by the Earth Institute, Sustainable Engineering Lab, Columbia University (2014) and the

implementation road map and investment prospectus by Castalia Strategic Advisors (2014).

17

sparse and the investment requirements for grid connections (per household) would be much

higher than in the central part of the country. Therefore, the off-grid program is to proceed in

parallel with the grid extension, focusing on villages which are unlikely to connect to the grid in

the next 10 or more years.

Geospatial Plan Method

37. To derive the geospatial plan, location-specific information for electricity demand and

power infrastructure was used, along with cost and technical values from local sources. A

substantial part of this work was the creation of a national geospatial dataset with three main types

of information: (a) geo-located populated places (or ‘settlements’); (b) MV grid line locations; and

(c) technology costs, technical specifications, and other values used for modeling energy demand

and system costs.

38. Once all data were prepared, the next step was a least-cost comparison of on-grid, mini-

grid, and off-grid electricity systems for each settlement. The model first projected the expected

population and electricity demand for each settlement. Cost calculations were then made,

incorporating all initial and recurring costs over the long-term (30 years) for all system types (grid,

mini-grid, off-grid), with a particular focus on the first 5 years. The model then used a customized

algorithm to select the lowest cost electrification option for each location. Communities

recommended for the grid were identified and the corresponding electricity network was mapped.

Locations where the grid was not recommended were assigned the least-cost non-grid alternative

which may have been mini-grid (solar, diesel, hybrid, and so on) or off-grid (typically solar PV

home systems).

39. For connection to the national grid, an algorithm was developed for an optimal connection

sequence extension plan. Many costs related to electric power infrastructure are either the same

for all households (for example, the cost for an electric meter) or vary with electricity demand (the

costs for transformers, solar panels, or diesel engines). However, some costs related to electric grid

infrastructure have spatial factors to incorporate, an important one being the length of MV grid

line required to connect communities. A key metric which reflects this geospatial factor is meters

of MV line installed per new household connection (MV/HH). MV/HH is a valuable metric, first,

for understanding the cost-benefit trade-offs related to grid extension versus off-grid alternatives

and, second, for prioritizing grid extensions in a least-cost manner. In general, the MV/HH is low

in urban and peri-urban areas, reducing grid extension costs on a per household basis, and higher

in remote and rural areas. When the metric MV/HH was used to select which communities should

be reached by grid and then to algorithmically determine the most cost-effective pattern of

connections, the result is typically to concentrate connections and prioritize sequential extension

within denser areas, which are lower cost and continue onto more remote, less dense, higher-cost

areas. This practically means that initial phases of grid construction reach areas that are closest to

the existing grid, where less extension of the MV lines is needed per household. Later phases reach

the next closest areas, toward rural remote communities where more MV lines are required.

Overall, under the least-cost extension, grid connections are prioritized in areas that meet higher

electricity demand with the shortest MV line extension.

18

Geospatial Plan Results

40. The most important recommendation of the geospatial least-cost electrification plan was

that grid extension is the most cost-effective means of electrifying for more than 90 percent of

current and projected unelectrified households throughout Myanmar over the long term (see Figure

4).

Figure 4. Geographic Distribution of Communities for Different Electricity System Types

Source: Earth Institute, Sustainable Engineering Lab, Columbia University 2014.

Note: HV = High voltage. MV = Medium voltage.

41. At the same time, the investment requirements per household will continue to rise with

increasing penetration of electricity toward less-populated areas. Even if electrification were to

proceed according to the initial grid extension plan and the corresponding coordinated investments

19

in generation and transmission continue apace, more than 1 million households would not be

connected to the grid for 10 or more years. Myanmar has a large populated region in the central

plains where the investment requirements for grid extension per household are modest and would

remain relatively low as grid penetration increases. However, in much of Shan or Chin States (as

well as other highland and remote areas) where settlements are sparse, the investment requirements

per household will rise sharply as the length of MV wire required rises quickly as electrification

proceeds in rural and remote areas (see Figure 5). Throughout the country, approximately 300,000

households, with a total population of perhaps 1.5–1.7 million (3–4 percent of the population)

reside in communities which, due to sparse and remote settlement patterns, are estimated to cost

more than US$1,200 per household for grid connection.

Figure 5. Initial Costs per Household Connection with Increasing Penetration Rate for Four Regions within

Myanmar

Source: Earth Institute, Sustainable Engineering Lab, Columbia University 2014.Unit is US dollars.

Grid Connection Phases

42. The grid extension has been planned in five phases, in line with the above approach. The

first phase connects the most and easier to reach households. The map in Figure 6 shows that in a

five-phase grid extension plan, it is most cost-effective to first electrify lowland regions, such as

Mandalay, Ayeyarwady, and Mon, where populations are dense and the grid is nearby (red and

orange lines). However, highland states such as Chin, Shan, Kachin, and Kayah are designated for

later phases of grid extension (green and blue lines) because populations are less dense,

communities are smaller and widely spaced, and grid extension costs are higher.

20

Figure 6. National MV Grid Extension in Five Phases, 2015–2030

Source: Earth Institute, Sustainable Engineering Lab, Columbia University 2014.

3.3 Rationale for Off-Grid Electrification

43. The analysis indicates that, in the long run, grid extension is cost-effective for virtually the

entire population. However, full grid electrification will take 15 years or longer. Costs to electrify

remote locations rise rapidly for the last 5 percent or so of grid extension as suggested in Figure 7.

21

Figure 7. Increase in the Length of MV Lines Installed per Household

Source: Earth Institute, Sustainable Engineering Lab, Columbia University 2014.

44. Furthermore, other factors, aside from MV/HH, will likely contribute to increasing costs

of serving these communities even more. These include challenges in electricity service provision

that utilities experience but which are often quite difficult to measure, such as the following:

(a) Demand density falls in more remote and poorer locations since commercial loads of

markets are reduced and household consumption falls.

(b) Transformer and distribution losses are higher as loads become more spread out and

loads tend to be characterized more by peaks than overall demand, when types of

demand are fewer.

(c) Operation and maintenance costs rise in remote areas since equipment is harder to

access and replace due to poorer roads and longer distances, and management costs

also rise as activities such as metering and bill collection become more difficult.

45. One of the most important factors to consider in electrification planning is timing of access.

Full grid electrification is expected to take at least 15 years. The highest-cost areas of Myanmar

are targeted for grid extension in the latest phases of grid extension, but they have urgent need for

basic power to service lighting for homes and power for clinics and schools. One response to this

issue is to plan temporary or transitional electrification option, which will provide electricity

access in the short to medium term to the most remote rural areas that are targeted for grid

extension in the later phases (hereafter referred to as ‘pre-electrification’). Non-grid electrification

(quantiles of equal MV)

22

technologies such as mini-grids and SHSs can provide electricity in the short to medium term.

Figure 8 shows the geographic areas that are targeted for pre-electrification.

46. Clearly, the areas (indicated in violet) proposed for pre-electrification—which fall mostly

in Chin, Shan, Kachin, and other highland states—show substantial overlap with the later phases

of planned grid extension, as shown in blue previously in Figure 6.

47. Quantitative information on pre-electrification by state/region is provided in Figure 9. The

‘last mile’ locations identified as ‘high cost’ represent around 5,000 settlements, containing about

250,000 households. As the table and bar chart show, the greatest needs are in Shan and Chin

States, while the needs of other areas that are relatively rural and remote from the existing grid are

also substantial.

48. It is important to note that the estimates in the 2014 plan, as described here, are based on

various assumptions. As off-grid electrification efforts proceed, there is a considerable chance that

demand for pre-electrification may turn out to be higher than expected. An update of the 2014

National Electrification Plan is due in 2017, considering progress on the ground and revised

assumptions as appropriate.

23

Figure 8. Locations Proposed for Grid and for Pre-Electrification under the 2014 Plan

Source: Earth Institute, Sustainable Engineering Lab, Columbia University 2014.

Note: In areas where grid services arrive later, off-grid pre-electrification can provide basic electricity

service in the near to medium term. Over the long term, grid extension is the least-cost option for more

than 90 percent of households.

24

Figure 9. Number of Households Targeted for Pre-Electrification by State/Region

Source: Earth Institute, Sustainable Engineering Lab, Columbia University 2014.Note: the scenario shown here

assumes that around 250,000 households will be included in the program.

3.4 Road Map to Universal Access by 2030

49. Analysis for the plan (Castalia Strategic Advisors 2014) suggests that universal access by

2030 will require 7,216,638 new residential connections over the 15-year period from now to then.

Figure 6 and Figure 10 show the main phases and intermediate milestones for implementation to

2030. Electrification will need to start with a steady ramp-up from the 2012 rate of 189,000

connections per year, to a steady state of around 517,000 connections per year. If so, this can

expect to result in approximately 47 percent of households having electricity by 2020, 76 percent

by 2025, and 100 percent by 2030. The last 10 to 20 percent of households will be particularly

difficult to reach, both from engineering and financial perspectives.

50. The 2014 plan estimates include projected population growth between now and 2030. As

such, the electrification program should evolve dynamically, both as more information becomes

available and as on-the-ground conditions change over time. The plan will need regular updating

and adjustments to reflect emerging new information (for example, the recently completed

population census) and the changing patterns in settlements, population, and electricity demand.

The national least-cost plan provides only a key benchmark for the electrification extension. The

Government may legitimately change the sequence of the extension for social or economic

reasons.

25

Figure 10. Projected Number of Connections to Achieve National Electrification

Source: Castalia Strategic Advisors 2014.

3.5 Implementation Arrangements

51. To build institutional capacity and implement sector reforms, the Government will need to

sustain a long-term commitment to national electrification. The 2014 plan states that a National

Electrification Executive Committee (NEEC) should oversee the electrification program, under

the patronage of a Vice President of Myanmar and co-chaired by the ministers of the respective

ministries responsible for electric power and rural electrification. With a permanent Secretariat,

headed by Deputy Ministers of both ministries, the NEEC should perform several major roles

including the following:

Provide overall strategic guidance on national electrification strategy and its

implementation.

Maintain and update the geospatial and financial plans for national electrification, and

monitor the achievement of targets.

Serve as the main point of contact for Myanmar’s international development partners

and advise the Government on managing a coherent financing program for the sector-

wide plan.

Provide advice and support to the ministries involved in implementing national

electrification activities for which they are responsible.

52. Until a regulator is established, the NEEC could also take on the additional responsibility

to:

Review and update the estimates of the total funding requirement for the coming five

years;

26

Advise the Government on tariff options and the implications for the subsidy

requirement; and

Coordinate timely delivery of the required subsidy.

3.6 Phase One of the Plan: 2015–2020

53. According to the plan (Castalia Strategic Advisors 2014), the first five years of

implementation require total investments and TA of about US$700 million to electrify around 2

million households (or about 10 million people) by 2020. Figure 11 displays the national least-cost

extension by state and region for the first five years. Table 1 shows the early estimates of annual

capital expenditures by connection type, noting that costs especially for pre-electrification may be

much higher in practice.

Figure 11. National Least-Cost Extension by State/Region, 2015–2019

Source: Castalia Strategic Advisors 2014.

Table 1. Early Estimate of Annual Capital Expenditure by Connection Type according to 2014 Plan (US$,

millions)

2015 2016 2017 2018 2019

Grid 72.5 80.6 79.8 139.9 232.2

Planned mini-grid 0.6 0.6 0.6 0.6 0.6

Pre-electrification 16.2 22.6 32.3 45.1 58.2

Off-grid 2.2 2.2 2.2 3.2 3.2

Total 91.5 106.0 114.9 188.8 294.2

Source: Castalia Strategic Advisors 2014.

Note: Includes 10 percent contingency.

3.7. The National Electrification Project

27

54. To help implement the electrification plan’s first phase, the Government has begun a

National Electrification Project to cover the period 2016–2021, with a total investment of around

US$567 million, including a US$400 million concessional loan from the World Bank. The project

formally began in September 2015. It aims to support the national electrification plan in

coordination with all development partners and the private sector, and establish the basis for a

sustained engagement for investments to achieve universal access to electricity by 2030, as well

as to strengthen the Government’s institutional capacities. National electrification requires finance

beyond any one partner’s contribution and so the project is open for development partners and

private sector participation. The project will also seek to leverage climate and carbon finance and

other possible sources of multilateral and bilateral financing. Initial results in implementation to

date include mobilization of donor financing from Germany (Kreditanstalt für Wiederaufbau

[KfW], German Agency for International Cooperation [Deutsche Gesellschaft fur Internationale

Zusammenarbeit, GIZ]); France (Agence Francaise de Developpement [AFD]); Italy; and the

ADB.15

55. The World Bank finance will support activities which combine investment and capacity

building in grid and off-grid electrification. The project is explicitly designed to bridge public and

private service provision and complements activities of the International Finance Corporation

(IFC) as part of an overall integrated World Bank Group Joint Implementation Plan (JIP). The

project has three main components, as summarized in the following paragraphs. IFC’s Lighting

Myanmar proposal is included to highlight its complementarity with the Government’s off-grid

electrification activities.

56. Component 1: Grid extension. This component supports the distribution utilities to

extend their networks and connect communities and households to the national power grid,

including through the provision of goods and materials for (a) the expansion of existing MV

substations and construction of new MV substations; (b) the construction of new LV/MV lines and

transformers; and (c) household and community connections and public lighting. The World Bank

is financing the cost of goods and materials (transformers, poles, conductors, insulators,

switchgear, materials, and so on) for this component. The participating utilities support

installation, with private (community level) contributions at a rate set by the Government and

possible private sector participation.

57. Component 2: Off-grid electrification. About 5.5 million households are estimated to

remain without access to the national grid by 2021. Of these, 1.3 million are in the remote Chin,

Kachin, Kayin, Shan, Rakhine, Tanintharyi, and Sagaing States/Regions. The project’s off-grid

component targets communities in these areas, located far beyond the existing national grid and

unlikely to receive grid access in the next 10 or more years and where private sector is not active

due to relatively high operating costs and low ability to pay. World Bank finance will cover partial

costs of goods and services for: (a) solar PV devices or systems for a target of 456,500 households;

(b) mini-grids to serve some 35,500 households; (c) electricity connections for 11,400 health

clinics, schools, and other community buildings; and (d) installation of 19,000 public street lights.

Villages, and the Government (with grant finance from other sources), will share the balance of

related costs. World Bank finance will disburse after installation and required services are

15 For up-to-date information on implementation status, see Annex 2: Information Resources.

28

delivered and field-verified in accordance with criteria to be detailed in DRD’s Project Operation

Manual.16 Mini-grid and community electrification will be ‘technology neutral’ and may include

solar PV, mini-hydropower, wind, diesel, or a hybrid (for example, diesel and solar), depending

on assessment of each community.

58. IFC’s Proposed Lighting Myanmar program. By targeting remote areas, the

Government’s off-grid activities are designed to complement and coordinate with IFC’s proposed

Lighting Myanmar program. The IFC program would provide advisory services to help develop

commercial market solutions for solar PV devices and kits in central Myanmar. This approach

recognizes the market segmentation between central regions and remote border areas, which

require different solutions. The scope of IFC’s program includes (a) consumer profiling and

segmentation, service demands, willingness and ability to pay, and other market intelligence; (b)

quality assurance including products certification, enabling participation of Lighting Global

quality-assured products in price-competitive procurement, building local capacity to assure

quality, and field performance testing; (c) consumer awareness and education on selection and

quality and acquisition channels of PV products as well as qualified service delivery agents; (d)

business-to-business support, including targeted business development services; and (e) access to

finance for the supply chain, including support to local distributors to assess working capital needs

and access to financing, identifying solutions to provide funds to the MFI sector and providing

linkages on the potential pipeline to MFI clients. Its total cost is estimated to be about US$4

million, financed with the donor’s trust fund and fees from IFC clients. The proposed IFC program

would provide such services separately and in parallel to World Bank support for the

Government’s project, as part of the overall integrated World Bank Group JIP.

59. Component 3: Technical assistance and project management. This component provides

support to MOEE and MOALI to (a) strengthen institutional capacity to implement the project; (b)

improve the policy and regulatory framework related to electrification and RE; (c) develop an

integrated framework to plan electrification, monitor result, and evaluate impacts; (d) secure

technical advice and consulting services, including on standards, technology assessment, and

technical design, economic and financial analysis, environmental and social impact management,

procurement, and financial management; and (e) improve project management.

60. Project cost and financing. As Table 2 shows, overall project cost is estimated at US$567

million, of which the World Bank covers US$400 million (71 percent).17 Other finance includes

an estimated US$75 million of community contributions for Component 1, US$32 million of

community contributions for Component 2, and US$60 million from the Government budget for

Component 2.

16 The MOEP and DRD will each have a separate Project Operation Manual for their respective parts of the project. 17 IFC’s proposed ‘Lighting Myanmar’ program is not included in the cost and finance figures of this project.

29

Table 2. Estimated Project Cost and Financing Requirement by Component

Component Project Cost

(U$, millions)

Source of Finance (US$, millions) (Share of

Project Cost)

World Bank

Finance Government

Local

Communities

1. Grid extension

2. Off-grid electrification

3. TA and project management

375

172

20

300

80

20

(80%)

(47%)

(100%)

—

60

—

—

(35%)

—

75

32

—

(20%)

(18%)

—

Total Project Costs 567 400 (71%) 60 (11%) 107 (18%)

Source: World Bank 2015a.

Note: It includes contributions from villagers, local governments, other donors, and the private sector, as

applicable, for village electrification.

61. Project beneficiaries. As Table 3 shows, the project is expected to benefit about 6.2

million people with new electricity connections by 2021. The beneficiaries will span rural and

urban areas in all of Myanmar’s seven states and seven regions. The project’s support to off-grid

areas will especially target communities in locations the grid is unlikely to reach in the next 10 or

more years (remote areas where social and/or ethnic tensions are often present).18

Table 3. Results Indicators for National Electrification Project

Indicator Name Cumulative Target by December 2021

(Compared to Baseline of 0 in December 2015)

1. People provided with access to electricity under the

project by household connections, of which

Grid

Off-grid solar

Mini-grid

6,210,000 people (1,242,000 households)

3,750,000 people (750,000 households)

2,282,500 people (456,500 households)

177,500 people (35,500 households)

2. Community electricity connections under the project, of

which

Grid

Off-grid/mini-grid

23,000 connections

11,600 connections

11,400 connections

3. Public lighting, of which

Grid

Off-grid/mini-grid

151,000 lights

132,000 lights

19,000 lights

Source: World Bank 2015a.

62. People living in areas electrified under the project are expected to benefit from (a) reduced

costs of electricity; (b) enhanced well-being through electricity for lighting, telecommunications,

and entertainment; and (c) job creation and opportunities to boost incomes and economic

productivity. To maximize developmental impacts, including health, education, and social

benefits, the project will prioritize connections for health clinics, schools, religious, and other

community buildings. The project will benefit groups vulnerable to social exclusion, such as low-

income and female-headed households, people with disabilities, students, and people of different

ethnic groups and religious beliefs. The project is also expected to strengthen the capacity of

village committees and improve the participation of community members, especially women, in

decision making for electrification.

18 In parallel, IFC expects that approximately 4 million people in central Myanmar would benefit from better access

to market-based solar PV devices and kits under its proposed Lighting Myanmar program.

30

63. Finally, the Government and private sector participants of the project will benefit from TA

and support for institutional development, capacity building, and gender-sensitive training for grid

and off-grid electrification activities.

4. ELECTRIFICATION AND POWER SECTOR REFORMS

4.1 Recent Reform and Policy Developments

64. In recent years, the Government has initiated several reforms to improve the institutional

and policy environment in the energy sector. After the lifting of many U.S. and European Union

sanctions in 2012, private sector participation has significantly increased in Myanmar’s power

generation. In 2013, the National Energy Management Committee was established to improve

coordination and policy making among multiple agencies responsible for energy at the time. The

then Ministry of Energy prepared an Energy Master Plan and a National Energy Policy, which was

adopted in 2014 to provide a broad framework and strategic directions for sector development

including electrification. Other major goals of the policy include energy mix diversification, higher

energy efficiency, and energy pricing policies that reflect economic costs for both suppliers and

users in the energy market.

65. In 2014, a new Electricity Law was adopted, which established the legal basis for IPPs and

PPPs and provided for introducing an Electricity Regulatory Commission that would catalyze

further sector reforms and much-needed private sector participation.19 This further opening up of

the sector to private developers under the 2014 Electricity Law created a surge of unsolicited IPP

and PPP proposals. However, associated secondary legislation (rules and regulations) have not yet

been adopted and the Commissions has yet to be established. The lack of detailed implementing

guidelines leaves investors uncertain about legality of and market feasibility of private

electrification projects, particularly in the off-grid space (Ross 2015; World Bank 2015a).20

66. Restructuring and corporatization have been initiated in the power distribution sector. To

improve performance and overall efficiency in power distribution, in April 2015, the Government

corporatized the former Yangon Electricity Supply Board (which accounts for about half of the

national electricity market) and created MESC for Mandalay, “to commercialize…in line with the

system of market economy.”21 ESE continues to serve all states and regions in the rest of the

country. Short-term concessions for LV distribution grid in urban areas (for example, Yangon and

Mandalay) have also been piloted to reduce distribution losses through private sector participation

in billing and collections. As a result, distribution losses have been significantly reduced. However,

continuing the loss reduction program will require substantial investments in expansion and

modernization of overloaded and outdated distribution networks.

67. As of August 2015, the small number of foreign investment enterprises in the power sector

represented approximately 28 percent of Myanmar’s total foreign investments, second only to oil

19 Pyidaungsu Hluttaw Law No. 44, October 27, 2014. 20 Advised by IFC, in April 2015, the former Myanmar Electric Power Enterprise completed the first competitive

bidding for an IPP and awarded a contract to operate a 225 MW gas-fired plant, in Myingyan, under a 22-year PPA,

with the former Ministry of Electric Power guaranteeing payment for purchase. This PPA is expected to serve as a

blueprint for use by other IPPs in the future (Ross 2015). 21 Notification No. 094/2015 dated March 30, 2015.

31

and gas at 40 percent (Ross 2015). It is estimated that the Government has entered memoranda of

understanding for several thousand MW of gas-fired, coal-fired, and hydropower projects over the

last couple of years. However, moving these proposals toward the signing of bankable PPAs

proved much more difficult. By 2015, the total installed capacity of IPPs reached about 440 MW

(270 MW in gas-fired plants and 170 MW in hydropower plants) or about 10 percent of the total

installed capacity of the country. Around 260 MW of rental power plants was connected to the

power grid to help alleviate acute power shortages. In April 2015, the Government completed its

first competitive bidding for the 240 MW Myingyan IPP, which resulted in a notably lower price

and better plant performance compared to unsolicited bids received earlier.

Tariffs

68. Electricity tariff reforms have enabled power generators and suppliers to cover the

operating cost of service (short-run marginal cost) but as of 2016 are insufficient to generate funds

for capital replacement and significant assets modernization for the future. The devaluation of the

Myanmar kyat in 2012 significantly increased the cost of electricity supply due to the higher cost

of U.S. dollar-denominated natural gas for power generation. The Government responded by

increasing electricity tariffs by 21 percent per year during FY2012–FY2014. The latest electricity

tariff structure for end users (effective from April 2014) provides three tariff blocks for residential

and small consumers and six tariff blocks for industrial and large consumers. However, effectively,

the residential consumers are still cross-subsidized by large commercial customers. Despite the

cross-subsidies, in 2014, the overall tariffs covered the cost of service, while the investment cost

remains subsidized by the Government. As a result, the sector on the whole has stayed profitable

during this period although the rate of profitability has been declining.22

69. In addition to the tariff increases, sector finances benefited from the higher proportion of

depreciated hydro power assets in the generation mix, preferential natural gas pricing and reduced

system losses. However, the increasing proportion of natural gas-based power plants, such as

rentals and IPPs, and the recent increase in domestic gas price are now altering the cost structure

of the industry and incurring financial loss for the sector (Deloitte 2016).

4.2 Agenda for Further Reforms

70. While these policy developments are commendable, national electrification will require

further deep sector reforms to overcome existing institutional and financing constraints. It is

unlikely that the existing sector institutions—in their current state—will have the capacity needed

to implement the program efficiently and at sufficient speed. Sector reforms will take time and the

electrification program cannot wait for the completion of the reform program. With this in mind,

a number of measures are suggested to improve operational efficiency and flexibility of the utilities

in the short term and enable first steps toward scaling up of electrification. These include the

following.

Distribution utilities to adopt medium- and long-term planning practices, beyond

current annual investment and implementation plans.

22 For example, profitability per kWh sold dropped from K 6.57 in FY2014 to K 4.00 in FY2015 (Deloitte 2016).

32

MOEE to provide the utilities with the flexibility to hire staff on short-term contracts

to enable more rapid expansion.

The Government to develop and announce a five-year tariff path policy consistent

with the electrification plan and with a realistic assessment of consumers’ ability and

willingness to pay.

71. The 2014 Electricity Law creates the foundation for further sector reforms, including

establishment of the Electricity Regulatory Commission. The complete corporatization and

commercialization of distribution utilities will go a long way in overcoming institutional and

financial constraints in the sector and will help attract more private sector participation, including

in the electrification program. The reforms expected in the financial sector are also important for

the electrification program. Strengthening institutional in the currently weak financial sector would

allow a transition from the current grant-funded off-grid program to a more commercialized and

private sector-driven program. Going forward, the Government should consider the policy options

discussed in the following sections.

72. Establishment of transparent regulatory framework. The Government should, as a

matter of priority, adopt secondary legislation (rules and regulations) which is necessary to

operationalize the 2014 Electricity Law. The new regulatory framework should focus on the

establishment of a transparent and efficient electricity market, particularly related to competitive

bidding for new generation on IPP/PPP basis. This will require adopting and maintaining a

transparent pricing policy, consistent with the principles of full cost recovery, and establishing the

Electricity Regulatory Commission provided by the 2014 Electricity Law. The commission would

ideally help depoliticize the tariff-setting process, scrutinize all costs incurred by sector utilities,

and reduce the current large cross-subsidies among consumer categories, thus providing both the

corporatized utilities and new private investors and lenders with greater certainty about the future

level of tariffs. Independent tariff regulation also ensures that the management and Board of the

corporatized utility cannot meet their financial performance objectives through the exploitation of

monopoly power rather than through efficient operation of the utility. By ensuring that the tariffs

are set so that the utility is only able to recover reasonably efficient costs, including the cost and

return on capital, a sound regulatory regime ensures that strong financial performance by the utility

is only possible if it operates efficiently.

73. Completion of corporatization and commercialization in power generation and

distribution. Effective corporatization and commercialization of YESC, MESC, and ESE can

improve sector performance and sustainable electricity supply. The utilities are allowed to operate

as independent commercial entities under a commercially skilled Board; are able to conduct

financing operations using their own budget; and are able to make independent decisions about

staffing levels, pay, and other resources. Under the corporatized structure, the utility’s performance

is judged by its ability to earn a return on capital, with the Board and management rewarded for

commercial performance in the same way as would occur in the private sector. Successful

corporatization programs should ideally result in reduction of undue political involvement in the

operation of utilities.

74. Further restructuring of ESE may be a medium-term objective subject to the future market

growth and electrification rate outside Yangon and Mandalay. Finally, a Myanmar Transmission

33

System Operator could be established as an independent transmission company. With sizable

investments being envisaged in the transmission subsector, corporatization of such an operator

should reduce the burden on the Union Government budget and allow financing to be raised on

the balance sheet.

75. Increased private sector participation. Scaling up access to the planned level will be

impossible without substantial private participation. Corporatization of the distribution utilities

should create better conditions for private sector investments in this subsector. The level of private

sector involvement may range from system loss reduction contracts, to management contracts to

full concession for utilities. The Government should encourage concessions for various sub-

franchises. This will greatly speed up the extension and will lead to lower costs. However, it is

essential that the process for sub-franchising be orderly and that it should encourage competitive

procurement.

76. MOEE, as the ministry overseeing ESE, should develop clear rules and standard

application forms for a sub-franchise (whether private or community owned). Such rules should

specify the responsibilities of the sub-franchisee (including the obligation to serve the entire

population in the area); define the boundaries between the sub-franchise and ESE as well as other

sub-franchises; and set the wheeling charges to be paid by the sub-franchises depending on the

extent of its reliance on ESE’s MV network.

77. Before the establishment of a regulator, MOEE, with advice from the NEEC, should set

the tariff rules and the starting tariff for the sub-franchise.

78. Sub-franchises should be allocated to operators on the basis of least subsidy. In some cases,

it should be possible to conduct competitive tenders: for example, MOALI could conduct a

competitive tender for minimum subsidy for its proposed PPP for rural electrification in the

priority areas. Similarly, if ESE designates an area as a potential sub-franchise, it could be bid out

on the basis of a minimum subsidy.

4.3 Need for New Generation and Transmission Capacity

79. In addition to the new distribution infrastructure costed under the electrification plan,

Myanmar would also require around 2.5–3.0 GW of new power generation capacity till 2030 just

to meet the needs of the 7.2 million new household connections under the assumed service standard

of 1,000 kWh per household per year. This is equivalent to doubling of the current generating

capacity. Because this represents only new residential demand—omitting commercial and

industrial demand, as well as demand growth for currently connected customers—the objective of

universal access clearly implies doubling the generation capacity at the minimum, all else being

equal.

80. Strengthened planning capacity and development of Gas Sector Master Plan and

Hydropower Development Plan. Myanmar has abundant energy resources, including natural gas,

hydropower, solar, and other renewable energy for power generation which has to increase in

tandem with the rapid growth in demand driven by rural electrification. The country is also well

positioned to be a regional trading hub in natural gas and electric power. Unlocking this potential

in an economically effective and environmentally and socially sustainable manner will require

34

careful analysis of all alternatives and rigorous planning to chart a sustainable development path

which will generate best economic and social results for the country and affected population. This

will require institutional development and capacity building for system planning, particularly in

the natural gas and hydropower sectors, as well as strengthening of environmental and social

safeguards and including public consultations in the planning process and project preparation

activities.

81. Table 4 summarizes the key policy proposals for the short-term (within two years) and

long-term (within three to five years) policy options for 2020 to help deliver on the above

objectives of increasing the rate of electrification; improving transparency and competition in the

electricity market and mobilizing private sector investments while protecting vulnerable

consumers; increasing operational efficiency through corporatization and commercialization of

enterprises in the power sector; and improving strategic planning capacity and mainstreaming

principles of environmental and social sustainability in power sector planning.

Table 4. Proposed Short-term and Long-term Policy Actions

Objectives Short-term Actions Long-term Actions

Increase the rate of

electrification and

reach at least

500,000

connections per

year by 2020.

Maintain the NEEC accountable to the

country’s Vice President for electrification

activities. Ensure that MOEE, MOALI, and

the utilities are adequately staffed and

equipped for effective coordination of

electrification program across the country.

Improve institutional capacity throughout

the electricity value chain. Provide support

for institutional capacity building to the

utilities (ESE, YESC, and MESC); local

contractors; and sector institutions at the

regional/state and district level. Adopt grid

codes and introduce modern technologies

and low-cost solutions for rural

electrification.

Improve

transparency and

competition in the

electricity market

and mobilize

private sector

investments while

protecting

vulnerable

consumers.

Adopt secondary legislation (rules and

regulations) for operationalization of the

Electricity Law. Establish the Electricity

Regulatory Commission. Adopt and start

implementing pricing policy based on full

cost recovery of the economic cost of gas and

electricity supply. Ensure that subsidies to

vulnerable consumers (direct or cross-

subsidies) are explicit, well targeted,

adequately budgeted, and fiscally affordable.

Increase private sector participation and

leverage public resources through

transparent and competitive IPPs/PPPs.

Mobilize private resources and commercial

financing to leverage public resources and

donors funding (including World Bank)

through a competitive selection of private

developers for priority investments on

IPP/PPP basis.

Increase efficiency

through

corporatization and

commercialization

of enterprises in

the energy and

power sector.

Complete corporatization of YESC and

MESC and foster their commercialization by

(in the first year) appointing CEOs, adopting

bylaws, and setting Key Performance

Indicators (KPI) for the newly established

corporations. Transform YESC, MESC, ESE

and EPGE into financially viable companies

with sound corporate governance, clear

development objectives and Key

Performance Indicators by developing a

Financial Viability Action Plan in the first

year. Introduce financial auditing in line with

international accounting standards.

Develop and start implementing

divestment program in the power sector

focusing on YESC and MESC. Develop

and start implementing restructuring

program for ESE, focusing on

corporatization of regional distribution

companies and creation of a Rural

Electrification Agency under ESE.

Establish the Myanmar Transmission

System Operator responsible for the HV

transmission system.

35

Objectives Short-term Actions Long-term Actions

Improve strategic

planning capacity

and mainstream

principles of

environmental and

social

sustainability in the

energy and power

sector planning.

Create a joint task force led by MOEE for the

review of gas sector development plans and

initiate preparation of gas sector master plan.

Create a joint task force led by MOEE for the

review of hydropower plans and initiate

preparation of hydropower development

program. Establish guidelines for

environmental and social safeguards and

encourage public consultations in

formulation of energy master plans.

Improve resource mapping and develop

geographic information system-based

maps of renewable energy resources. Carry

out system studies for integration of

renewable energy in the power grid.

Develop an integrated generation and

transmission expansion plan to meet future

electricity demand in affordable, reliable

and sustainable manner based on master

plans for gas, hydropower, and renewable

energy development.

5. INTERNATIONAL DONOR SUPPORT FOR ELECTRIFICATION

5.1 Rationale for Concessional Finance

82. National electrification is being undertaken at the same time as Myanmar’s economy is

undergoing major transformations. The electrification plan envisages a growing role for the private

sector, including reliance on private finance through a mix of equity and commercial borrowing.

However, in the immediate future, access to appropriate finance remains severely constrained.

The Myanmar banking system is poorly developed. No banks offer loans for periods of more

than two to three years and refinancing of existing debt is extremely difficult. The Village

Electrification Committees often are only able to borrow for three to six months. Hence, any

finance that could be obtained from the Myanmar banking system would require rapid

amortization through tariffs or subsidies.

The banking system has little experience in infrastructure project finance. Hence, there would

likely be delays in securing the necessary credit, at whatever cost and tenor. Furthermore, the

banking system is unlikely to be able to accommodate overall credit demand of over US$100

million per year from the power sector.

While international commercial lenders may be willing to finance electricity generation IPPs

in Myanmar, it is unlikely that such lenders would provide systematic and reliable support to

the distribution extension without significant structural reforms, such as full corporatization

of the major electric utilities and the introduction of an independent electricity regulator.

However, such reforms would take time and this circumstance should not delay the

implementation of the electrification extension.

Finally, the cost of commercial finance is initially likely to be substantially higher than the

cost of finance provided by international development partners. Myanmar is still seen as a

high-risk investment destination. However, over time, the risk premium of lending to

Myanmar businesses should decline.

83. Therefore, it is very likely that without substantial support from the development partners,

the objective of achieving 2 million new connections in the next five years would not be met. It

would be unrealistic to expect to raise the required US$700 million (including TA) over this period

from commercial sources, and even if this amount could be financed, the burden on the consumers

36

and the Government of servicing such debt at commercial rates and tenors would not be

sustainable. It is estimated that electricity tariffs would need to rise from the current weighted

average of US$0.064 per kWh to US$0.27 per kWh (Castalia Strategic Advisors 2014). Such a

steep tariff hike would not be socially acceptable. In effect, to keep tariffs affordable and to achieve

universal electrification without access to concessional finance, the Government would have to

substantially increase its current funding commitment to the sector. However, this does not appear

possible, given the existing severe fiscal constraints. Even if it were possible, such fiscal

commitment would undermine the Government’s other national development objectives and deter

private sector participation in the sector.

84. Given the existing financing constraints, meeting the financing need through concessional

donor finance will make a significant development contribution.

It will enable Myanmar to achieve the targeted 2 million new connections in the next five

years. Not only will this make a significant contribution to the country’s development by

giving those households access to electricity, it will underwrite the ramp-up in both technical

and institutional capability required to achieve full electrification by 2030.

It will ensure that the burden on Myanmar consumers and the Government is consistent with

their ability to pay. In the absence of donor financing, tariffs should rise to unaffordable

levels. The long tenor of the concessional finance ensures that the future users of electricity—

who can expect to be substantially better off than the current users—assume a fair share of

the burden.

It will support the extension program over the period of economic reforms. Over time, as

Myanmar’s economy becomes more integrated with the global financial system, and as the

local banking system matures, commercial finance will increasingly become available, which

can replace concessional finance without a material shock to tariffs.

5.2 World Bank Group Support

85. The National Electrification Plan was developed with World Bank TA of US$1.5 million

funded by the Sustainable Energy for All initiative. The World Bank Group JIP for Myanmar

supports public and private efforts to increase electricity access and alleviate acute electricity

shortages. The JIP’s first stage (2013–2015) focused on increasing gas-fired power generation

capacity and efficiency and laid the foundation for national electrification. The US$140 million

World Bank finance for the 2013–2018 Myanmar Electric Power Project includes investment to

increase the capacity and efficiency of a gas-fired power plant in Thaton, Mon State. The IFC and

Multilateral Investment Guarantee Agency have supported MOEE to conduct Myanmar’s first

competitive bidding for an IPP, a new 240 MW gas-fired plant in Myingyan, Mandalay Region.

86. Scaling up access to electricity requires sector reforms and increased private sector

participation. The Government and its development partners recognize that the next stage of sector

development will require further reforms, institutional strengthening, and deeper private sector

involvement. With help from IFC, the Government has already initiated corporatization in the

power distribution sector, which will create conditions for private sector investments in the

distribution utilities. Also, a proposed IFC-led ‘Lighting Myanmar’ initiative supports the private

37

sector to develop a commercial market for off-grid solar devices and kits as an integral part of

national electrification efforts. In addition to financing support, the World Bank Group provides

TA and policy advice on power sector financial viability, electricity tariffs, and subsidies review

and institutional capacity building for environmental and social due diligence, procurement, and

financial management in MOEE and other sector entities.

87. The World Bank Group helped the Government develop its national electrification plan

with support from the Energy Sector Management Assistance Program (ESMAP. A major step to

turn the plan into reality was taken in September 2015 when the Government and World Bank

agreed on a loan of US$400 million for a National Electrification Project, covering grid extension

and off-grid electrification for the period 2016–2021. In addition to working with the public and

private investors, development partners active in Myanmar collaborate closely, including the

ADB, Australia, Japan, Germany, Norway, the United Kingdom, and the World Bank Group.

38

REFERENCES

Castalia Strategic Advisors. 2014. “Myanmar National Electrification Plan: Roadmap and

Investment Prospectus.” Prepared for the World Bank, Washington, DC.

Deloitte. 2016. “Myanmar Power Sector Financial Analysis and Viability Action Plan. Key

Findings and Recommendations.” Presentation for the Ministry of Energy.

Earth Institute, Sustainable Engineering Lab, Columbia University. 2014. Myanmar National

Electrification Plan: Least-Cost Geospatial Electrification Planning Results. Prepared for

the World Bank.

ESMAP (Energy Sector Management Assistance Program). 2012. “Rwanda. Extending Access

to Energy. Lessons from Sector-Wide Approach.” Washington, DC: World Bank.

Government of Indonesia and ADB (Asian Development Bank). 2015. “Achieving Universal

Access in Indonesia.” Final Report. Jakarta.

Independent Evaluation Group. 2015. “World Bank Group Support for Electricity Access,

FY2000–FY2014. An Independent Evaluation.” World Bank, Washington, DC.

Intelligent Energy Systems. 2014. “Myanmar Energy Master Plan.” Prepared for the Asian

Development Bank and the Myanmar Ministry of Energy.

KWR International (Asia). 2015. “The Critical Importance of Power Development in Myanmar.”

Ross, Rachel Posner. 2015. “Myanmar’s Path to Electrification. The Role of Distributed Energy

Systems.” Center for Strategic and International Studies, Washington, DC.

The Republic of the Union of Myanmar. 2015. “The 2014 Myanmar Population and Housing

Census.” http://www.dop.gov.mm/moip/ or http://myanmar.unfpa.org/census.

World Bank. 2011a. One Goal, Two Paths. Achieving Universal Access to Modern Energy in

East Asia and the Pacific. Washington, DC: World Bank.

———. 2011b. Vietnam. State and People, Central and Local, Working Together. The Rural

Electrification Experience. Washington, DC: World Bank.

———. 2015a. Project Appraisal Document for a National Electrification Project. Report No:

PAD1410. Washington, DC: World Bank.

———. 2015b. “Rwanda Electricity Access Scale-up and Sector Wide Approach Development

Project.” Public Disclosure Copy. World Bank, Washington, DC.

———. 2016. “Energizing Myanmar: Enhancing Access to Sustainable Energy for All.” Policy

Note. World Bank, Washington, DC.

39

Annex 1. Bangladesh IDCOL Model for Off-Grid Electrification

Source: World Bank 2015a

1. Generally, key elements of this best practice model include:

(a) Public-private partnerships to implement a phased long-term national off-grid

program at scale;

(b) Existence of a strong commercially oriented, well-managed, and well-capitalized

Program Manager (PM) (IDCOL);

(c) Delivering off-grid products and services through program partners that use quality

products, offer effective services, honor warranties, adopt a competitive sales and

service model, and follow responsible financial management practices;

(d) Access to reasonably priced financing and availability of grant assistance to increase

affordability and to ensure the program partners have adequate capital for investing

and operating the off-grid service infrastructure and consumers can pay for their off-

grid investments over time;

(e) Social acceptability and confidence in the program partners at the community level

and the existence of a microcredit culture in rural areas resulting in customer readiness

to try the off-grid systems;

(f) Risk sharing between the PM and program partners, proper customer selection, and

attention by both the PM and the program partners to collection efficiencies;

IDCOL

40

(g) The ability to achieve low costs through economies of scale, competitive procurement,

and competitive sales, and offering and honoring multiyear warranty for batteries and

maintenance;

(h) Customer training imparted by the program partners enabling the customers to carry

out regular, simple maintenance work themselves to enhance reliability, availability,

and customer satisfaction—crucial requirement to ensure loans are repaid;

(i) Sense of ownership by consumers resulting in proper system care;

(j) Large customer base in relatively densely populated areas

(k) Setting technical standards and enforcing the standards through strong supervision

and monitoring by the PM.

41

Annex 2. Information Resources

The MOEE website is www.moep.gov.mm and Facebook page is

https://www.facebook.com/MinistryOfElectricityandEnergy.Myanmar/.

The DRD website is www.drdmyanmar.org and the Facebook page specifically on

the National Electrification Project off-grid component is www.facebook.com/NEP-

DRD-157149644665246/.

The World Bank provides information about the National Electrification Project

including Implementation Status and Results Reports at

http://projects.worldbank.org/P152936?lang=en

IFC has information about its Myanmar program here:

http://www.ifc.org/wps/wcm/connect/region__ext_content/regions/east+asia+and+th

e+pacific/countries/ifc+in+myanmar.

Other materials including workshop presentations are available at Energypedia:

https://energypedia.info/wiki/Achieving_Universal_Access_to_Electricity_in_Myan

mar.

The Energypedia website also hosts the two documents that comprise the 2014 National

Electrification Plan:

Myanmar Geospatial Least-Cost Electrification Plan

https://energypedia.info/wiki/File:MMR-NEP-

Geospatial_Least_Cost_Planning_Draft_FinalReport-2014-08-28.pdf

Myanmar National Electrification Plan: Roadmap and Prospectus

https://energypedia.info/wiki/File:Myanmar_NEP_Roadmap_and_Prospectus_Draft

_Final_14_08_28.pdf

42

Annex 3. Development Partner Support for Electrification23

Partner Project Description Budget Time Frame Geography

ADB

TA for the Off-Grid Renewable Energy Demonstration Project to support

the scale-up of off-grid solutions for RE in Myanmar.

The TA has three activities:

1. Demonstration of Solar Mini-Grid: Procurement and installation of

modular solar PV mini-grids for 12 piloted villages (about 1,500

households) in Mandalay, Sagaing, and Magway Regions. US$500,000 is

used to finance part of the cost of these modular solar PV mini-grids. The

communities contribute 10% of the cost.

2. Least-cost Energy Access and Off-grid Investment Plan. The TA utilizes

geospatial planning tools to develop off-grid investment plans for villages

in Mandalay, Sagaing, and Magway Regions. This investment plan also

includes business models and financing recommendations for scale-up of

off-grid renewable energies.

3. Strengthen Off-Grid Planning and Business Capacity for Myanmar

government institutions. The TA helps creation of a government office

responsible for technical standards and certification of RE systems and

service providers.

~US$2 million,

including US$500,000

for pilot projects

2015–early

2017

Activity 1

almost

completed

Investment

plan ongoing

Magway,

Mandalay, Sagaing

Australia Supporting Lighting Myanmar

UK

Department

for

International

Development

Pilot testing mini-grids with solar hybrid power systems using the ABC

model in Mandalay, Magway, and Shan through Infracapital Myanmar. In

discussions with DRD. TA and investment.

Also supporting Lighting Myanmar.

European

Union

Rural development is one of the four areas of focus. Preliminary stages of

planning for next year, funding for rural electrification. Plan to use blended

facility at regional level (Asian Investment Facility). Emphasis on climate

change mitigation.

EUR 10 million (grant

funding) 2017–? TBD

23 Known to World Bank as of October 2016.

43

Partner Project Description Budget Time Frame Geography

Germany

GIZ

Supporting DRD on mini-grids through TA and some for pilot projects.

Main thematic areas:

Supporting DRD on rules and regulations for mini-grids (for example,

grid interconnection)

Capacity building for private sector (local project developers),

technical and business development skills

Supporting DRD on site assessments (focus on Shan)

Supporting DRD on mini-grid project proposal appraisal

~US$2.2million Q1 2016–

2020

Southern Shan

(projects)

Nationwide

(TA/enabling

environment)

IFC

Lighting Myanmar project supporting manufacturers and distributors of

high-quality solar to enter and scale in Myanmar, through market research,

business development support, consumer education, and policy

engagement. Supported by U.K. Department for International Development

and the Australian Government.

Also exploring potential support for mini-grid sector.

~US$4 million Q3 2016–Q2

2020

Central Myanmar

(Ayeyarwady,

Bago, Magway,

Mandalay, Mon,

Naypyitaw,

Sagaing, Yangon)

Italy

Parallel soft loan for National Electrification Project (in collaboration with

World Bank); in this framework, a TA component is under evaluation,

along with a capacity development contribution focused on gender.

Possibility to use part of the soft loan for mini grid.

Soft loan EUR 30

million,

Grant EUR 2.5 million

(under study)

Q2 2017–

2020 Magway - Chin

Japan JICA

‘Regional Development Project for Poverty Reduction Phase I’ (loan)

provided financial support for MV/LV distribution lines and mini-grid

system by diesel generators. Off-grid works are done.

Preparing Phase II project (loan); final report to be published around

December 2016. Have decided to focus on the on-grid sector only.

Support installment of SHS system in remote villages in Yangon Region

(grant base technical cooperation).

Support a survey conducted by a private firm to examine business model of

off-grid solutions (for example, SHS/solar lantern) for low-income

customers.

Approximately US$35

million for on-grid

electrification

Approximately US$5

million for off-grid

Approximately US$50

million for grid

electrification

Approximately

US$0.1 million for

off-grid survey

Phase I: Q2

2013–Q2

2017

Phase II: Q4

2017–2021

SHS

completed

Survey

March–

October 2016

Nationwide

Nationwide

Taikkyi T/S,

Yangon Region

Kyaukpadaung T/S,

Mandalay Region

JICA Mini-grid projects in Chin and Shan—mix of hydro and solar, 11 projects

total 2016? Chin and Shan

44

Partner Project Description Budget Time Frame Geography

Germany

KFW

Overall rural electrification program around EUR 60 million, split between

loans and grants,

EUR 40 million German funds, EUR 5 million DRD funds, EUR 10 million

from MOEE/ESE and regional government of Shan State’s funds, and EUR

5 million end user’s funds. Both components are designed under the NEP.

Off-grid Component 1: Grants for SHS in Southern Shan State,

implemented by DRD. International competitive bidding of implementation

consultant is ongoing; planning to start work in 2017.

On-grid Component 2: Mainly soft loan for grid extension in Southern Shan

State implemented by ESE under MOEE. International competitive bidding

of implementation consultant is ongoing, planning to start work in 2017.

EUR 9 million for off-

grid component

(including EUR 7

million investment and

EUR 2 million for

accompanying

measures)

Around EUR 30

million for grid

extension (including

EUR 6.535 million for

specific HHs’

connection and

consulting measures)

2017–2020 Southern Shan

World Bank

Capital support for SHS, mini-grids, and public lighting systems. The first

contract for SHS at value of approximately US$30 million has been signed

for delivery and one-year maintenance of some 136,000 SHSs and 14,000

public facilities, where installation will begin in January 2017. The second

contract for SHSs with estimated value of US$71 million is under way. The

mini-grid subcomponent has been progressing and proposals are being

vetted by the Project Implementation Office with TA from GIZ. Thirteen

proposals are on solar mini-grids. Project Management Office is identifying

attractive cofinancing arrangement and improving communication and

information sharing to facilitate greater participation from the private sector

for investment in hydro mini-grids.

Also substantial TA, including technical consultants for DRD and

electrification planning. Terms of reference for geospatial electrification

planning and investment prospective is being updated and call for proposals

is expected in late January 2017.

US$80 million capital

support

~US$10 million TA

2016–2020

Solar systems:

Border areas

(Ayeyarwady, Chin,

Kayin, Rakhine,

Sagaing, Shan,

Tanintaryi)

TA:

nationwide/enabling

environment

UN

Development

Programme

In conception phase for rural electrification project in Myanmar 2018–?

45

Partner Project Description Budget Time Frame Geography

UN

Economic

and Social

Commission

for Asia and

the Pacific

Has TA with DRD to promote 5G community participation model for rural

electrification (trying to replicate Indonesia experience)

46

Acknowledgements

The report is a synthesis of multiple technical documents and reports resulting from extensive

World Bank engagement with Myanmar for national electrification since 2013. Dejan Ostojic and

Xiaoping Wang co-led this engagement on behalf of the World Bank, including for preparation of

the National Electrification Plan and the follow-on project with IDA support of US$400 million.

Julie Fraser provided strategic guidance. Other core members of the World Bank team include

Alan David Lee, Rome Chavapricha, and Myoe Myint. Istvan Dobozi was the principal author of

this synthesis report, with assistance from the rest of the World Bank team.

Throughout the World Bank’s engagement, numerous consultations were carried out by and with

government agencies, development partners, private sector, and civil society organizations,

involving several hundred participants. Major source documents and reports include the 2014

geospatial, least cost electrification plan and universal access road map and prospectus by Earth

Institute, Sustainable Engineering Lab, Columbia University and Castalia Strategic Advisors,

respectively, as World Bank consultants and the 2015 National Electrification Project Appraisal

Document by the World Bank team.

In addition, many consultants and staff members contributed to the discussions and preparation of

the Government’s Plan and IDA-supported project, including, but not limited to, Arun Sanghvi,

Anil Cabraal, Chris Greacen, Panos Vlahakis, Chris Purcell, Voravate ‘Tig’ Tuntivate, and Huong

Mai Nguyen. Theingi Min, Thida Aung, and Chawsu Devi are acknowledged for their operational

support from Myanmar. World Bank engagement was made possible partly due to generous

financial support from the Sustainable Energy for All Technical Assistance Program of the Energy

Sector Management Assistance Program and the Asia Sustainable and Alternative Energy

Program.

Above all, the World Bank team extends its sincerest appreciation to the Government of the

Republic of the Union of Myanmar for their leadership, hospitality, and cooperation for the

partnership to realize Myanmar’s goals for the energy sector and sustainable development more

broadly.

47

Map of Myanmar

48

Glossary and abbreviations

CURRENCY EQUIVALENTS

As of May 15, 2016

1 United States Dollar (US$) = 1,171.8 Myanmar Kyat (K)

MYANMAR FISCAL YEAR

April 1 – March 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank

DRD Department of Rural

Development (Myanmar)

ESE Electricity Supply Enterprise

(Myanmar)

ESMAP Energy Sector Management

Assistance Program

EPGE Electric Power Generation

Enterprise (Myanmar)

EVN Electricity of Vietnam

FY Fiscal year

GIZ German Agency for

International Cooperation

(Deutsche Gesellschaft fur

Internationale

Zusammenarbeit)

GDP Gross domestic product

HH Household

HV High voltage

IDCOL Infrastructure Development

Company Limited

(Bangladesh)

IEG Independent Evaluation Group

(World Bank Group)

IFC International Finance

Corporation

IPP Independent power producer

JICA Japan International Cooperation

Agency

JIP Joint Implementation Plan

(World Bank Group)

kVA Kilovolt-ampere

kWh Kilowatt-hour

Lao PDR Lao People’s Democratic

Republic

LPG Liquefied petroleum gas

LV Low voltage

MESC Mandalay Electricity Supply

Corporation

MFI Microfinance institution

MOALI Ministry of Agriculture,

Livestock, and Irrigation

(Myanmar)

MOEE Ministry of Energy and

Electricity (Myanmar)

MV Medium voltage

MW Megawatt

NEEC National Electrification

Executive Committee

PEA Provincial Electricity Authority

(Thailand)

PM Program Manager

PV Photovoltaic

PPA Power Purchase Agreement

PPP Public-private Partnership

SHS Solar home system

TA Technical assistance

YESC Yangon Electricity Supply

Corporation